Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

PK Basu has 34 years experience covering Asia's economies and markets (equities, fixed income and currencies), including 20 years covering the global economy. He was Chief Economist (SE Asia & India) at Credit Suisse First Boston for 5 years, and Chief Asia (x-Jpn) Economist at Daiwa Securities for a similar period. Among other roles, he was global head of research at Maybank Kim Eng, Malaysia equity research head and chief ASEAN economist at Macquarie, ASEAN economist at UBS and the first chief economist at Khazanah Nasional (where he was co-head of research, and led all agri-business initiatives). PK Basu started his career in the Asia Service of WEFA (Wharton Econometrics) in Philadelphia in 1990, rising to be Director of their Asia Service in June 1994. 
PK's book, "Asia Reborn: A continent rises from the ravages of Colonialism and War to a New Dynamism" won the Tata Literature First Book Award (non-fiction) for 2018. It is the first single chronicle of the modern economic and political history of the whole of Asia (from Iraq and Turkey to Korea and Japan, and everything in between), told from an Asian perspective.

Chief Economist & Political Strategist

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CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Cross Asset Strategy

With the output gap closing, and a big US$900 billion fiscal stimulus on the way, the 24% YoY pace of M2 growth is bound to push core PCE inflation above 2% YoY by March 2021. The FOMC will be obliged to cut back on its promise of US$120 billion of monthly asset purchases by April, and to actually raise the Fed Funds rate by mid-2021. We consequently expect a dollar rally in 2021, and a sell-off in risk assets (including equities) by 2Q 2021. US money supply (M2) has plateaued at 23-25% YoY growth in the past half year (far faster than the peak in M2 growth at 10.4% YoY in Jan 2009 during the GFC). Despite a wide output gap (10% of potential GDP in 2Q 2020, and 3.5% in 3Q 2020), core PCE inflation was only slightly lower in July-November 2020 (1.3-1.6% YoY) than in the last two pre-Covid months (1.7-1.8% YoY in Jan-Feb 2020). With the output gap set to close in the current quarter, as indicated by the current strength of ISM's PMIs for both manufacturing and services, the surging pace of M2 growth is likely to begin generating over 2% core PCE inflation by March 2021.The FOMC has repeated that it will allow core PCE inflation to "moderately" exceed 2% for a time (to offset the long periods below 2% YoY) before raising the Fed Funds rate. However, its latest statement also says the FOMC is "prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals". With ISM new orders pointing to a stronger US economy in 1H 2021, Congress has just approved a US$900 billion fiscal stimulus to further turbo-charge the economy (and provide support to individuals' and SMEs' ability to consume and invest). Although the unemployment rate will still be 5.5% in March 2021, employment is unlikely to rise substantially more (given the productivity-enhancing impact of work-from-home, which will permanently reduce resource use across the economy). Consequently, it will be impossible for the FOMC to keep its promise to purchase US$120 billion of assets monthly after March 2021, by which time core PCE inflation will be pushing past 2% YoY.By April 2021, we expect the Fed to be obliged to considerably reduce the size of its monthly purchases of Treasury and mortgage-backed securities, and to raise the Fed Funds rate by June 2021. The failure to do so will cause inflation to rise past 3% YoY amid a closed output gap and surging economy. In the intervening period, the yield curve will steepen further, but equities will sell-off by March 2021 as markets turn increasingly risk-averse amid rising signs of inflation (and higher inflationary expectations). We would recommend taking profits on global equities by end-2020, and switching to a more defensive asset allocation in 1Q 2021. Banks, however, will be an exception worth holding onto amid a steepening yield curve.

With the output gap closing, and a big US$900 billion fiscal stimulus on the way, the 24% YoY pace of M2 growth is bound to push core PCE inflation above 2% YoY by March 2021. The FOMC will be obliged to cut back on its promise of US$120 billion of monthly asset purchases by April, and to actually raise the Fed Funds rate by mid-2021. We consequently expect a dollar rally in 2021, and a sell-off in risk assets (including equities) by 2Q 2021. US money supply (M2) has plateaued at 23-25% YoY growth in the past half year (far faster than the peak in M2 growth at 10.4% YoY in Jan 2009 during the GFC). Despite a wide output gap (10% of potential GDP in 2Q 2020, and 3.5% in 3Q 2020), core PCE inflation was only slightly lower in July-November 2020 (1.3-1.6% YoY) than in the last two pre-Covid months (1.7-1.8% YoY in Jan-Feb 2020). With the output gap set to close in the current quarter, as indicated by the current strength of ISM's PMIs for both manufacturing and services, the surging pace of M2 growth is likely to begin generating over 2% core PCE inflation by March 2021.The FOMC has repeated that it will allow core PCE inflation to "moderately" exceed 2% for a time (to offset the long periods below 2% YoY) before raising the Fed Funds rate. However, its latest statement also says the FOMC is "prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals". With ISM new orders pointing to a stronger US economy in 1H 2021, Congress has just approved a US$900 billion fiscal stimulus to further turbo-charge the economy (and provide support to individuals' and SMEs' ability to consume and invest). Although the unemployment rate will still be 5.5% in March 2021, employment is unlikely to rise substantially more (given the productivity-enhancing impact of work-from-home, which will permanently reduce resource use across the economy). Consequently, it will be impossible for the FOMC to keep its promise to purchase US$120 billion of assets monthly after March 2021, by which time core PCE inflation will be pushing past 2% YoY.By April 2021, we expect the Fed to be obliged to considerably reduce the size of its monthly purchases of Treasury and mortgage-backed securities, and to raise the Fed Funds rate by June 2021. The failure to do so will cause inflation to rise past 3% YoY amid a closed output gap and surging economy. In the intervening period, the yield curve will steepen further, but equities will sell-off by March 2021 as markets turn increasingly risk-averse amid rising signs of inflation (and higher inflationary expectations). We would recommend taking profits on global equities by end-2020, and switching to a more defensive asset allocation in 1Q 2021. Banks, however, will be an exception worth holding onto amid a steepening yield curve. 

2021 to Mark the Return of Inflation: Fed Hike by Mid-Year Implies Risk-Off by 2Q/21